Fed: U.S.'s slowdown temporary, rates will continue to stay low

WASHINGTON — The Federal Reserve said Wednesday that the U.S. economy "paused" in recent months because of temporary factors and reaffirmed its commitment to try to stimulate growth by keeping borrowing costs low for the foreseeable future.

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By MARTIN CRUTSINGER

MailTribune.com

By MARTIN CRUTSINGER

Posted Jan. 31, 2013 at 2:00 AM

By MARTIN CRUTSINGER
Posted Jan. 31, 2013 at 2:00 AM

» Social News

WASHINGTON — The Federal Reserve said Wednesday that the U.S. economy "paused" in recent months because of temporary factors and reaffirmed its commitment to try to stimulate growth by keeping borrowing costs low for the foreseeable future.

The Fed took no new action at its two-day policy meeting. But it stood behind aggressive steps it launched in December to try to reduce unemployment, in a statement released after the meeting. In December, the Fed said it would keep its key short-term interest rate at a record low at least until unemployment falls below 6.5 percent. Unemployment is currently 7.8 percent. And the Fed said it would keep buying $85 billion a month in Treasurys and mortgage bonds to try to keep borrowing costs low and encourage spending.

The Fed's decision to continue its stimulus programs was largely expected and had little impact on stock and bond prices.

Earlier in the day, the Commerce Department said the economy unexpectedly shrank at an annual rate of 0.1 percent from October through December. The first quarterly drop in growth since the final months of the Great Recession was mainly because companies restocked at a slower rate and the government slashed defense spending.

In its statement, the Fed said "economic activity paused in recent months, in large part because of weather-related disruptions and other transitory factors."

Despite the slowdown, the statement noted that hiring continued to expand at a moderate pace, consumer spending and business investment increased and the housing sector showed further improvement. And it said strains in global financial markets have eased somewhat, but cautioned that risks remain.

The statement made no mention of deep cuts in defense and domestic spending that will take effect in March if Congress and President Barack Obama don't reach a deal to avert them. Those cuts threaten to keep growth weak in 2013.